European bank shares are down for the second day following a last minute
bailout package aimed at Italian banks one day before a stress test showed
Monte dei Paschi would be insolvent in an adverse scenario.
The ECB’s stress tests published on Friday showed Monte dei Paschi has a
huge capital shortfall, with the bank’s Common Equity Tier 1 (CET1) ratio of negative
2.44 percent.
Forget the adverse scenario bit, Monte dei Paschi, Italy’s third largest
bank and oldest bank in the world is insolvent in any realistic scenario.
On ZeroHedge provided the Full Details Behind Monte Paschi’s €5 Billion Bail Out
but the short synopsis is the same as ever: It cannot possibly work.
Supposedly, a €1.6 billion investment into a mezzanine tranche of Monte
dei Paschi from the €5 billion Atlante (Atlas) rescue fund is all it takes to
cure some €50 billion in nonperforming loans at the bank.
In total, the Italian banking system has €360 billion in nonperforming
loans and Atlas is supposed to take care of the entire mess.
Monte dei Paschi Rescue Hits Bank Shares
Yesterday the Financial Times reported Monte dei Paschi Rescue Hits Bank Shares.
Shares in UniCredit, Italy’s largest bank by assets, tumbled 9 per cent on
Monday after the terms of a rescue plan for Monte dei Paschi di Siena suggested
that other Italian banks might have to raise more capital.
Under the MPS rescue plan, the Tuscan bank will shift its entire
bad loan portfolio of €27.7bn into a securitisation vehicle, priced at 33
cents on the euro.
[How that got to €27.7bn from €50bn is a mystery but these numbers have
been bouncing all over the place week to week. Yesterday the FT reported “The
rescue is intended to put Monte dei Paschi’s long-running capital concerns
behind it. In a two-pronged operation the bank’s €50bn of gross
non-performing loans will be moved into a special-purpose vehicle to be
securitised for sale.]
People are looking at MPS and saying if that’s the new fair value, then
we’re going to need to see capital raises from other domestic banks we
thought were safe, even though they ‘passed’ the stress test.
“This is a Monte specific solution and it doesn’t address the sector as a
whole . . . it will use the remaining capital in the Atlante fund,” said
Rahul Kalia, an investment manager at Aberdeen Asset Management.
[I don’t believe it addresses anything. The market seems to agree].
Lorenzo Codogno, founder of LC Macro Advisors and former chief economist
at the Italian Treasury, said: “This first jumbo operation is likely to
jump-start a market for NPLs [non-performing loans] in Italy which can become
extremely useful in addressing the broader problems”. It could be replicated
across Italy’s banking system, he says.
Confidence Shell Game
#eu
Supposedly, the €5B Atlas fund will fix €360B in nonperforming loans.
No rational person believes that, and the market doesn't either.
— Mike Shedlock (@MishGEA) August 2, 2016
Instead, debt was repriced lower across the board and more write downs are
feared.
Monte dei Paschi Down 16% Today
Monte dei Paschi Down 99.72% Since May 2007 High
It’s not just Monte dei Paschi, or even just Italian banks.
BNP Paribas Daily Chart
BNP Paribas, a French multinational bank is a certified all star compared
to German banks.
Deutsche Bank Daily Chart
Deutsche Bank Monthly Chart
What About Commerzbank?
May 1, 2016: Commerzbank Looks to Build on Gains of Recent Years
July 25, 2016: Commerzbank Warns of Decline in Capital Position
In an unscheduled announcement, Germany’s second-largest bank by assets
said that its core tier one capital ratio — a key measure of financial
strength — had fallen from 12 per cent at the end of March to 11.5 per cent
at the end of June.
That is still above regulators’ minimum requirements — but diverges from
the 12 per cent that analysts had been expecting, which triggered the
impromptu disclosure under Germany’s strict securities laws.
Commerzbank Daily Chart
Commerzbank Monthly
Race to Zero
I am sure glad “Commerzbank Looks to Build on Gains of Recent Years”.
Are they talking about gains in the race to zero?
If so, percentage-wise Commerzbank is ahead of Deutsche Bank but behind
Monte dei Paschi. The last final plunge takes considerable effort however.
Monte dei Paschi remains the overwhelming odds-on favorite.
The Financial Times discusses the Vanishing Market Value of European Banks.
“The key to us is understanding this is a profitability issue versus an
insolvency issue,” says Hani Redha, a portfolio manager at PineBridge
Investments, regarding the sector’s performance.”
I suggest (as does the market) the entire European banking system is on
the verge of collapse.
Mike “Mish” Shedlock
